U.S. LNG Developer Is Offering Shorter-Length Supply Contracts

By Naureen S. Malik

(Bloomberg) — In the fast-expanding global liquefied natural gas market, long-term supply contracts lasting 20 years have become the norm. But one aspiring U.S. producer is challenging that model.

Closely held Commonwealth LNG, which is seeking to build a $4 billion Louisiana export terminal, is offering potential customers contracts as short as 10 years, Chief Executive Officer Paul Varello said in a telephone interview. It’s also offering fixed-price terms, and is willing to sell for less than the U.S. industry standard of 115 percent of the Henry Hub benchmark, he said.

The possibility of shorter-term contracts shows how LNG is becoming more commoditized, as production and trading volumes continue to grow. Commonwealth is facing fierce competition not only from the world’s biggest LNG suppliers like Qatar and Royal Dutch Shell Plc but also about a dozen other U.S. export projects.

“I am hopeful that we will get to agreements with several of the customers” this week at the industry’s biggest event of this year, LNG19, in Shanghai, Varello said.

The Houston-based developer expects to receive approval for its project from the Federal Energy Regulatory Commission in late 2020 and then make a final investment decision in the fourth quarter of next year, Varello said. Start-up would then follow in the first quarter of 2024 or even earlier. Varello said the company will need six customers to be able to build 8.4 million tons per year of LNG capacity.

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